On bootstrap implementation of likelihood ratio test for a unit root
Anton Skrobotov ()
Economics Letters, 2018, vol. 171, issue C, 154-158
In this paper we investigate a bootstrap implementation of the likelihood ratio test for a unit root recently proposed by Jansson and Nielsen (2012). We demonstrate that the likelihood ratio test shows poor finite sample properties under strongly autocorrelated errors, i.e. if the autoregressive or moving average roots are close to −1. The size distortions in these case are more pronounced in comparison to the bootstrap M and ADF tests. We found that the bootstrap version of likelihood ratio test (with autoregressive recolouring) demonstrates better performance than bootstrap M tests. Moreover, the bootstrap likelihood ratio test show better finite sample properties in comparison to the bootstrap ADF in some cases.
Keywords: Likelihood ratio test; Unit root test; Bootstrap (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
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Working Paper: On Bootstrap Implementation of Likelihood Ratio Test for a Unit Root (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:171:y:2018:i:c:p:154-158
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